DSCR and Seller Financing for SBA Loans

searcher profile

May 31, 2021

by a searcher from The University of Chicago - Booth School of Business in Chicago, IL, USA

Just a quick question -- in SBA lending decisions, does the DSCR usually get calculated including or excluding payments on the seller note in the denominator? I know the seller note is subordinated and so I imagine it would be excluded, but wanted to make sure. Thanks in advance.

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commentor profile
Reply by a lender
from University of Missouri in St. Louis, MO, USA
We include it. Denominator in the equation is 12 months of debt service so this would be a debt obligation. We also require payment subordination so if you fall below a threshold (1.25x) we shut the seller note payments off. This is a big protection for you.
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Reply by a professional
from University of Denver in Denver, CO, USA
Similar to Colin, I typically see it included in the DSCR calculation and failure to meet the DSCR threshold allows the bank to cause the borrower to stop paying under the seller note, which the seller agrees to in the subordination agreement.
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